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TMI Blog2024 (4) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... rt also referred to CBDT instruction no. 3/2003 and ruled that it is mandatory for the AO to refer the matter to the TPO in order to determine the ALP of the international transactions if selected for scrutiny on the basis of transfer pricing risk parameters. It is abundantly clear that in cases, where certain international transactions may have a bearing on the computation of total income, the AO ought to refer the matter to the TPO in order to determine the ALP of the international transactions and the AO, while computing the total income of the assessee, shall proceed in conformity with the ALP determined by the TPO. It is trite position of law that if the legislative scheme prescribes an act to be done in a certain manner, it ought to be done in that manner, and that manner alone. As per the legislative mandate behind Section 92CA of the Act, the ALP determination of any international transactions falls in the domain of the TPO. Moreover, the dictum laid down in CIT v. S.G. Asia Holdings [Supra] noticeably elucidates that the AO is not clothed with the powers to ascertain the ALP of any international transaction that is selected on the transfer pricing risk parameters. Furtherm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Section 92E of the Act, therefore, a reference was made by the AO to the Transfer Pricing Officer [ TPO ] for determination of Arm's Length Price [ ALP ] of the said international transactions. 4. Thereafter, upon considering the reply of the assessee, the TPO passed an order under Section 92CA(3) of the Act on 31 January 2021 and vide this order, the TPO determined a transfer pricing adjustment of INR 25,58,68,79,196/-. However, on an even date, the TPO passed a rectified order and adjusted the ALP to the tune of INR 16,84,51,531/-. In the said rectified order, while determining the ALP, the TPO also suggested the AO to examine the taxability of the value of the demerged business of the assessee to the tune of INR 25,41,84,27,665/-. 5. Pursuant to the TPO order, on 24 April 2021, the AO passed the draft assessment order under Section 144C of the Act and computed the total adjustment of INR 25,58,68,79,196/-, which included the ALP of INR 16,84,51,531/- and INR 25,41,84,27,665/-. Aggrieved by the said order, the assessee approached this Court by way of the present writ petition, assailing the impugned order inter alia on the ground that the AO proceeded to make transfer pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, it is pertinent to refer to Section 92CA of the Act. The relevant extracts of Section 92CA of the Act are reproduced herein for reference:- [92-CA. Reference to Transfer Pricing Officer. (1) Where any person, being the assessee, has entered into an [international transaction or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the [Principal Commissioner or Commissioner], refer the computation of the arm s length price in relation to the said [international transaction or specified domestic transaction] under Section 92-C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm s length price in relation to the [international transaction or specified domestic transaction] referred to in sub-section (1). [(2-A) Where any other international transaction [other than an international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in clause (ii) or clause (x) of Explanation (1) to Section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly.] [(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of Section 92-C in conformity with the arm s length price as so determined by the Transfer Pricing Officer.] (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of Section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer. [Emphasis added] 11. A bare perusal of the aforenoted Section would reveal that in order to compute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be selected for scrutiny before making reference to TPO, the assessing officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of international transaction before making final assessment. *** (vi) Role of the assessing officer after receipt of arm's length price : Under sub-section (4) of Section 92-C, the assessing officer has to compute total income of the assessee having regard to the arm's length price so determined by the TPO. 7. In view of the guidelines issued by CBDT in Instruction No. 3/2003 the Tribunal was right in observing that by not making reference to TPO, the assessing officer had breached the mandatory instructions issued by CBDT. We do not find the conclusion so arrived at by the Tribunal to be incorrect. 8. However, the Tribunal ought to have accepted the submission made by the departmental representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the assessing officer so that appropriate reference could be made to TPO. It would therefore be up to the authorities and the Commissioner concerned to consider the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO; where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant's report filed under Section 92E of the Act and the said transaction or transactions come to the notice of the AO; and where the taxpayer has declared the international transactions or specified domestic transactions in the Accountant's report filed under Section 92E of the Act but has made certain qualifying remarks to the effect that the said transactions are not international transactions or specified domestic transactions or they do not impact the income of the taxpayer. In the above three situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. In case no objection is raised by the taxpayer to the applicability of Chapter X [Sections 92 to 92F] of the Act to these three situations, then AO should refer the international transaction or specified domestic transaction to the TPO for determining the ALP after obtaining the approval of the PCIT or CIT. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Section 92CA(3) of the Act. Further, in terms of sub-section (4) to Section 92 CA of the Act, the AO is obliged to compute the total income of the assessee in conformity with the determination made by the TPO. 14. The determination which the AO makes in the first instance is recognized to be a draft of the proposed order of assessment by virtue of section 144C(1) of the Act. If the assessee be aggrieved by the proposed order of assessment, it is entitled to file objections before the DRP in accordance with Section 144C(2) of the Act. The power of the AO to complete the assessment on the basis of the draft order stands interdicted in case objections have come to be preferred within the 30 day period as contemplated in Section 144C(2) of the Act. It is the DRP which thereafter proceeds to decide the objections and frame directions to enable the AO to complete the assessment in accordance with Section 144C(5) of the Act. [Emphasis added] 15. Therefore, it is abundantly clear that in cases, where certain international transactions may have a bearing on the computation of total income, the AO ought to refer the matter to the TPO in order to determine the ALP of the international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the impugned order, under Section 144C read with Sections 143(3) and 144B of the Act, proposed to add an amount of INR 25,58,68,79,196/-. The AO noted the TPO order dated 31 January 2021 and computed the total income of the assessee by adding the amount of INR 16,84,51,531/- which is the total adjustment determined by the TPO and also the amount of INR 25,41,84,27,665/- which according to him is the value of the demerged business determined by the TPO. Interestingly, the order noted that it has been passed considering the mandate of Section 92CA(3) read with Section 92CA(4) of the Act. 18. A bare perusal of the TPO order dated 31 January 2021 would suggest that the TPO never determined the ALP of the international transaction relating to the demerger of business and rather only determined an adjustment to the tune of INR 16,84,51,531/-. Though the TPO order inter alia reflects some discussion regarding the value of the demerger of the business, it nowhere held that the amount of INR 25,41,84,27,665/- depicted the ALP of such an international transaction. For the sake of clarity, the relevant extracts of the TPO order dated 31 January 2021 are culled out herein below:- 33. The cu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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